Magazine

In Iran, Pockets of Progress

July 15, 2001

Iranians have paid a big price for their revolution. Growth seems finally to be kicking in--5.8% is predicted for this year--but unemployment remains high, at 12% to 15%. It is hard to see how the 1 million Iranians coming into the job market over each of the next few years can find work. This could be a recipe for unrest.

Riots and protests aren't inevitable, however. Iran today is more welcoming toward business investment than at any time in the 22 years since the revolution. True, state organizations and religious charities control an estimated 80% of Iranian economic activity, but Tehran also harbors a humming stock exchange that is watched by hundreds of Iranians as a kind of spectator sport. It even has hundreds of Internet startups. Of course, prohibitive taxes and a suspicious, nationalistic bureaucracy are tremendous obstacles. While Iran remains at an impasse with the U.S., which could be a huge source of investment, private businesses are putting down some surprisingly healthy roots.

TEHRAN'S "TWO COOLEST GUYS"

They want to be Iran's AOL

The Internet boom may have turned to bust in the West, but in Iran consumers are only just starting to sample life online. That's where Madjid Emami and Abdollah Fateh come in.

In the past two years, Emami, 30, and his partner Fateh, 28, have signed up 7,000 customers to their Internet service provider, Pars Online. They say they are growing by 1,000 subscribers a month. While Internet statistics are hard to come by here, Emami and Fateh reckon Pars Online is one of the big five Internet players in a market of 100,000 to 150,000 users. Demand is so high that there are more than 100 companies offering Internet access in Tehran alone.

Both Emami and Fateh are U.S.-educated and could be in business there. Yet they moved back to the old country in the mid-1990s to see if working in Iran was worth their while. "I was planning to go to law school, but my Dad persuaded me to try it here for a year," says Emami, who majored in history at the University of California at Los Angeles. Fateh studied hotel management at Boston University. His family, which is in the construction business, also asked him to give Iran a shot.

After knocking around a bit in Tehran, the pair decided to go high tech. Three years ago, they started raising some $500,000 from family and friends and began the laborious process of persuading the telecom ministry, which has a monopoly on phone lines, to provide them with connections.

Now, the Net is proving a powerful tool for ending the isolation of Iranians. Businesses are hungry to get on the Web to market their products both in Iran and to the outside world. Traffic is brisk between expatriate Iranian businesses in the U.S. and the home country. Emami says Iranians are interested in the Web mainly for research, e-mail, and phone service. Most big international Web sites, such as Yahoo!, have Iran chat rooms where young men and women meet. Some of the candidates in the recent presidential campaign had Web sites. Pars Online provides links to news services, including the BBC, and a vast array of Islamic sites, including the Web site for Imam Khomeini, Iran's spiritual leader. "Thirty years ago, governments could keep information from the people," says Mohammad Ali Abtahi, chief of staff to President Mohammad Khatami. "Now, borders have gone away."

Although the government's phone monopoly means it could easily censor Iran's Internet, censorship has not been a problem. One reason is practical: Filters blocking pornography and the like would further strain Iran's overworked phone capacity. Yet the government recently shut down more than 100 Internet cafes that were undercutting the ministry on overseas calls.

24-HOUR HELP. Iran's hunger for Internet access has brought all sorts of mom-and-pop providers into the business. But as the industry becomes more competitive, a shakeout is likely. To survive, Emami and Fateh must remain competitive with companies that are better connected and capitalized. Among their rivals is a unit of Dade Pardazi, the nationalized remnant of IBM. BusinessWeek estimates that Pars Online is taking in about $100,000 per month in revenue.

Pars Online's founders are betting on innovation and service to give them an edge. That's why they put most of their profits back into the company. They were the first to introduce a 24-hour helpline--a move other providers quickly copied. Pars Online is again breaking new ground by introducing 56 kbps Net access, much faster than what most rivals offer. The founders say their goal is to be an Iranian, or even regional, America Online. With 64 million people, Iran has huge potential.

Even before their fortunes are made, these bachelor entrepreneurs are heroes to Tehran's smart set. Emami, who spent most of his life in California and looks and sounds it, is said to be a kind of icon. "They are the two coolest guys in Tehran," says a female admirer.

Both Fateh and Emami seem a bit surprised to find themselves in Iran. Nonetheless, it's a heady experience to be on the cutting edge, building an elite workforce that now numbers 30. Pars Online insists on fluency in English and sends its more promising engineers for certification by Cisco Systems in nearby Dubai. "It is very sweet to be doing this in Iran," says Emami. If it doesn't drive you crazy.

By Stanley Reed in Tehran

A WOMAN ON THE TRADING FLOOR

This broker is in the vanguard

Where does one go for fun in an Islamic republic? In Iran, it's the stock exchange. When trading is under way, people pack into the Tehran Stock Exchange's headquarters in a business district not far from the presidential palace. Knots of dealers and speculators crowd the observation gallery, gossiping and watching the tote board, a huge black panel with company names and prices in glowing red.

Down on the floor of the exchange are phalanxes of desks, where some two dozen brokers ply their trade. One of these is Mahnaz Sadegh-Nobari. She holds an accounting degree and used to buy and sell old houses before gravitating to the exchange in 1991. At that time, the market had begun to revive under probusiness President Hashemi Rafsanjani. At first, Nobari traded through a dealer, but after a three-year apprenticeship she began to trade on her own. "There is a love of buying and selling in my genes," she says.

Nobari, 49, is just one of a growing number of women in the professions in Iran. Iranian women are a powerful force for a more open and tolerant society, and with girls comprising 60% of university entrants, they are likely to become increasingly influential. Iranian women such as Nobari have been big supporters of President Mohammad Khatami, and this year he went out of his way to acknowledge that support in his reelection campaign.

In 1994, Nobari set up her own company, Donyaye Khebre (Expert World). It employs 15 people and has a turnover of $30 million per year. Her firm's 0.5% commission makes her a high earner in Iran, where the average wage is $50 a month. Nobari is in demand. She works by herself on the floor and is constantly interrupted by calls on her mobile and fixed-line phones. "Customers want to know our opinion," she says.

"DOUBLE YOUR MONEY." Recently, the market has been thriving. Including dividends, the all-share index has returned 67% since the end of 1999. Greater political stability under Khatami as well as lower inflation and higher prices for oil, Iran's main export, have all helped. The market's capitalization is in the $9 billion range, with about 300 companies listed. Many of the biggest stocks are investment companies that place pension money. Other heavily traded stocks include Iran Khodro Co., an auto maker that is 45% owned by the government, and oil-related concerns such as Arak Petrochemical.

Among the crowd of dealers and speculators at one recent session was a man who gave his name only as Ali. He said he had been spending his days at the market for 11 years. He first came with friends and then started trading, initially for himself, then for members of his family. "It has been good for me," he says. "Sometimes I have bought stocks that have gone up tenfold. If you work well here, you can double your money each year."

With an overall price-earnings ratio of just 5, Iranian stocks are relatively cheap. Still, there are plenty of risks. Investors could get whacked by anything from plummeting oil prices to an escalation of Middle East tensions.

For now, though, Nobari is running hard. When the exchange closes at 1 p.m., she goes to work at her firm's office. She lives in upscale North Tehran with her husband and youngest daughter. Her two other daughters go to college in the U.S. Nobari says her father, a retired civil servant, is stunned by her success in a previously male-dominated environment. It won't be any surprise if her daughters also make waves.

By Stanley Reed in Tehran

BANKING ON CHANGE

A fledgling lender's journey

Like many well-educated Iranians, Parviz Aghili found more opportunity for his banking talents outside the country than inside. But when he heard in 1993 that the government was open to permitting private banking in Iran, he returned home from Canada. "I felt that a lot of us who left Iran were responsible for what happened," says Aghili, an executive with the Development & Investment Bank of Iran before the revolution. "Now that my kids have grown up, I have a responsibility to try to improve the situation."

The efforts of the veteran financier to establish a bank have had plenty of ups and downs. After years of dithering, the authorities gave him the green light to set up Karafarinan Credit Institution, a de facto bank, in 1998. He expects to receive an official banking license soon. Karafarinan has two branches in Tehran. Another will open soon in Isfahan. Aghili, 55, thinks he can introduce efficiency and service to an industry that has seen the world pass it by. There is only a rudimentary credit-card system and little long-term financing for business. Mortgage lending is limited. Says one European banker in Tehran: "Normal commercial banking doesn't exist."

Indeed, Iran is dominated by state-owned institutions, such as Bank Melli. These dinosaurs could be quickly wiped out by a more efficient private banking system, but their day is not yet over. Banking is a highly sensitive area politically, and the government is likely to permit a very gradual opening to private financial firms. At this point, there are no private banks. Karafarinan is one of three credit institutions. Probably the most impressive unofficial bank, Bonyad Credit, has an unauthorized 250-branch network set up by one of the Islamic foundations that play a huge role in the Iranian economy.

NEW DEALS. During its brief existence, Karafarinan has made a specialty of lending to the booming construction industry. Aghili is negotiating with the World Bank for help in starting an equipment-leasing business. And he is trying to find a foreign partner to help broker investment deals in Iran. His company now has $8 million in loans outstanding and has issued $14 million in contractors' bonds. In 2000, its first full year of operation, Aghili's company made a profit of about $800,000.

Aghili is also in the midst of raising the $25 million capital required for a fully licensed bank. The first stage--a rights offering to his 500 shareholders to boost capital from $4.25 million to $12.5 million--is almost complete. Aghili says he is encouraged by the willingness of his investors to convert their dollar holdings to Iranian riyals to fund their commitments. He figures that even a year ago they might not have taken the risk. Now, pioneers like Aghili are making profit a possibility, even in Iran.